State Bank of Pakistan keeps policy interest rate steady at 22%
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has announced its decision to maintain the key policy rate at 22%, as detailed in their official statement.
The determination to hold the policy rate at 22% was the result of a thorough evaluation by the MPC, considering various economic variables.
One pivotal factor influencing this resolution was the recent inflation trend.
Specifically, the MPC observed a significant reduction in inflation from its peak of 38% in May to 27.4% in August 2023. The trend, combined with the anticipation of continued declining inflation, played a pivotal role in retaining the existing policy rate.
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In spite of recent increases in global oil prices, which have been passed on to consumers through adjustments in administered energy prices, the MPC maintains confidence in the inflation outlook, especially in the latter
part of the year. This confidence is based on several factors, including the favorable real interest rates expected in the future.
Additionally, the expected easing of supply constraints due to improved agricultural output and recent regulatory measures against speculative activities in the foreign exchange and commodity markets are expected to bolster a positive inflation outlook.
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The MPC also highlighted four significant developments that have occurred since its previous meeting in July:
Enhanced Agricultural Prospects: The most recent data on cotton arrivals, improved input conditions, and satellite data indicating healthy vegetation for other crops have contributed to an improved agricultural outlook.
Increasing Global Oil Prices: Global oil prices have been on the rise and are
currently hovering around $90 per barrel.
Current Account Deficit: As anticipated, the current account has shifted from surplus to
deficit in July, partly due to the recent relaxation of import restrictions.
Positive Regulatory Initiatives: Recent administrative and regulatory actions aimed at improving the availability of essential food commodities and
curbing illicit activities in the foreign exchange market have begun to yield positive
results, narrowing the gap between interbank and open market exchange rates.
The SBP's MPC reaffirmed its commitment to vigilantly monitor risks to the inflation outlook and expressed readiness to take appropriate measures when necessary to achieve the objective of price stability.
Furthermore, the MPC emphasized the importance of maintaining a prudent fiscal stance to effectively manage aggregate demand. This fiscal responsibility is considered crucial to reaching the medium-term target of 5-7%
inflation by the end of the fiscal year 2025.
Source: The Current